​The software industry is in the midst of a multi-year secular shift toward software as a service (SaaS). Innovation in cloud infrastructure and networking technologies over the last 10-15 years has enabled an increasing number of new and innovative SaaS companies to come to market. In our view, this shift from on-premise license models to SaaS could last for many years to come.​

​Many investors are worried about the de-globalization of the world. While many metrics do suggest that global production and trade of tangible items are slowing, the trade of digital information and code (bits) is showing no signs of cooling down.​

Lauding Labor Aug 28, 2019

​As Labor Day approaches, we see a trend in wage growth that bodes well for the economy, but poses an obstacle for businesses trying to manage wage cost pressures. ​​​

Over three quarters of all U.S. equity fund assets are in large capitalization stocks with the next largest allocation being small cap stocks. With those two categories making up more than 90% of fund assets, are investors missing an opportunity?​

Emission Mission Aug 14, 2019

Reducing greenhouse gas emissions is believed to be critical to keeping the rise in global temperatures this century under 2°C (3.6°F). What would need to happen for the world to reach that goal?

​When it comes to framing risk, especially in a recessionary environment, it is important to understand history. Gauging expected earnings in a difficult economic environment is key to understanding risk in investments.​

​U.S. equity price-to-earnings (P/E) multiples are higher than their historical average. However, an examination of the changing nature of business models suggests that valuations may be more attractive than they appear.​

​The Federal Reserve meets July 30-31 to discuss possible monetary policy actions. Expectations are for the first rate cut since December 2008. But what might this mean for the economy and investors?​

​Streaming video products take multiple forms: short internet clips, subscription-based services, such as Netflix, traditional content providers and gaming software. Today approximately 200 streaming video services exist but the top four companies dominate the market with the number one provider garnering a 70% share of homes. In fact, many homeowners stream content from multiple sources.​

A Record to Fear? Jul 10, 2019

​The total dollar amount of debt held by U.S. households and corporations recently hit a record high. Some are fearful this will lead to a deep recession. While the absolute numbers are high, what may matter most is the ability to repay the debt—the debt service level.​

​This year we celebrate the 243rd birthday of the U.S. Since its founding the U.S. has been renowned for its democracy and capitalist system that embraces change and innovation. These factors have been the catalysts of the U.S.’s robust stock market, which outstrips that of any other nation worldwide.​

​Your genes determine more than your eye color or your physique. The propensity of you or your offspring to develop certain diseases is highly influenced by genetics. The good news is research into the genome, your complete set of genes, has started to drive huge medical breakthroughs and new drugs are regularly approved for people with rare genetic conditions. As a result investment opportunities up and down the genomic food chain are plentiful.​

​Moore’s Law states that the speed and ability of computers doubles every two years as the number of transistors on a microchip increases. It has been the driving force of the global digital revolution. Now a different version of Moore’s Law is set to usher in even larger, more powerful changes in technology and living standards.​​​​

​Economists and market pundits have clear beliefs regarding how the economy works. In the view of many, growth peaks when the economy is fully utilizing resources. For example, historically labor force employment increases lead to wage growth, resulting in higher inflation and ultimately higher interest rates. This leads to a slowing economy, and the cycle begins anew. Interestingly, today’s U.S. economy is not working in this fashion. ​

Déjà vu Again? Jun 05, 2019

​When it comes to the stock market, sentiment can change quickly—sometimes regardless of fundamentals—and affect performance. The Health Care sector has historically delivered attractive investment opportunities but may be succumbing to negative sentiment today. Savvy investors should consider the current opportunity in Health Care. ​

​The Internet of Things (IoT) is quickly taking shape all around us. It’s important that investors understand it so they can recognize its investing implications and opportunities.​

​Often in economics breaking down a whole into its components tells a unique story. While overall GDP appears to be at or above potential, some of its components suggest continued growth.​

​One metric that tracks potential investment losses is the downside capture ratio, which indicates how investments fare in a down market relative to a benchmark. Like all performance metrics, it is one input in a broader assessment.​

​As we prepare to celebrate Mother’s Day, the first quarter earnings season is wrapping up and on the surface it may not seem like one that would make mom proud. However, there is reason to be optimistic that earnings growth will bounce back, providing a supportive backdrop for equities.​​​

HR Gets Connected May 01, 2019

​Cutting-edge human resources (HR) departments are seeking to provide more services and benefits to their employee base by utilizing new technologies. In particular, cloud computing allows HR departments to streamline their workflow and conduct business more effectively. Investors should look at the technology companies enabling these changes.​

​Combining one’s passion with one’s investment strategy may get some investors excited but it hasn’t turned out to be the most lucrative approach in recent years, even for the very wealthy who make up the predominant investors in collectibles. While sometimes amassing art or vintage cars, for example, can reap valuable gains, investing in equities during the past 10 years has proven substantially more profitable. ​

​Digital transformation has significantly impacted the industrials sector, where companies are using software, data and artificial intelligence (AI) to monitor and optimize their assets with the Internet of Things (IoT). ​

Recession Check Apr 10, 2019

​When trying to understand the probability of a recession, it can be challenging to conclude much from news headlines or media stories. However, the Conference Board Leading Economic Index (LEI) has been a reliable indicator of future economic growth and its current reading implies that a recession is not imminent. ​

​The number of overweight people worldwide is a growing trend, having tripled since 1975 to nearly 2 billion people, 13% of whom are considered obese. There may be a benefit to investing in health care companies that are developing products, procedures, or services to treat the complications associated with people who are overweight.​​

​Driving assistance technology, such as safety features, is saving lives and reducing costs associated with accidents. It’s also an important step in the high stakes race to develop autonomous vehicles. As firms aggressively work to develop self-driving vehicles, they are creating new investment opportunities among companies that provide sensors, computing platforms, semiconductors and software.​​

​Currently it appears that smaller capitalization stocks may be positioned for higher returns than their larger counterparts. As fundamentals and valuation both seem to be aligned, small caps may be able to reverse a multiyear period of underperformance.​

​Choosing wisely is paramount when it comes to achieving optimal investment results. Behavioral psychology teaches us several important lessons on how investors’ minds operate. Although economics assumes humans behave rationally, relying too much on our own experience often prevents us from doing so. However, an important technique exists to help us make better decisions.​​

​The bull market in U.S. equities could celebrate its 10th birthday on March 9th, 2019. Here we look back at how much ground this historic bull market has covered and look forward to potential continued expansion. A variety of economic indicators, including the Institute of Supply Management’s survey of new orders, point to potential economic growth that could support equities.​​

​What is an economic moat? It’s a representation of a company’s sustainable competitive advantage, which matters because wide moat companies, whose competitive advantages are expected to be durable over the long term, have historically outperformed.​

​Markets have been volatile in recent months but Growth has beaten Value over several significant measurable periods. One key factor may be that accounting standards have failed to keep pace with the changing economy.​

​Innovation in the health care sector is accelerating due in part to a more accommodating regulatory environment for new approaches to medical treatment. Tracking which companies are participating in novel drug manufacturing may be important for health care investors.​​​​​​

​Many experts pay close attention to the great wealth of the Baby Boomers but Gen X and Millennials have actually surpassed the Baby Boomers in their share of disposable income, which is expected to rise strikingly in coming years.

Goodbye, peak growth. Hello, equity gains? It may not make sense at first blush but slowing economic growth can, and often does, coincide with positive equity returns.​​​​

​The mobile boom in China has driven innovation and today China possesses a host of new internet creations that lack U.S. equivalents. As a result, there may be a significant long-term opportunity in China.​

​Stock investors typically monitor earnings closely, yet investors cannot “spend” earnings to buy food or pay rent. That is done with cash. Investors should consider an additional measure: free cash flow conversion. Free cash flow conversion measures the ratio of a company’s cash flow to net income, thus making it a more effective measure of cash generation for corporations.​

​Did you know that during economic downturns innovation has managed to thrive? For example, throughout the Global Financial Crisis technological innovation prospered. It stands to reason that disruptive technologies may continue to flourish during future periods of market volatility and economic turbulence.​

Improve or Lose Jan 01, 2019

​From an inventory management perspective, the economy is becoming more efficient. Companies that embrace change and innovation are likely to increase their efficiency and profitability. ​

​The contribution limit of a 401(k) will increase by $500 on January 1, 2019. While it may not seem like much, contributing $500 more per year and thus making continual sacrifices throughout an entire career can add up to a meaningful difference, helping to fund a more comfortable retirement.​

Cash Back Rewards Dec 19, 2018

​Companies are repurchasing their own stock in record amounts. In doing so, these companies are returning cash to shareholders, which is providing a meaningful tailwind to earnings per share (EPS), i.e., an increase in EPS.​

​It may seem distant, but there was a time before we could stream content, store data in the cloud or use apps on our phones. We had no idea such functionality existed in our future. Currently we are at a similar inflection point as we await the arrival of 5G technology. What new efficiencies and capabilities will it bring?​

Confidence Rules Dec 04, 2018

​The economy is expanding and one reason is fewer regulations. With less red tape, businesses are freer to spend money. Currently their spending, a key driver of GDP, is outpacing overall economic growth this year. Investors may want to consider this significant change when constructing their portfolios.​

​Have bond flows peaked? The prospect of declining flows into fixed income, driven by rising interest rates and weak bond returns, may likely shift money into U.S. equities. This has important implications for investors.​

​​​Will higher interest rates bring down stock prices? Many investors are concerned about rising rates but an examination of current stock valuations relative to bonds reveals that stocks haven’t priced in how low interest rates have become and therefore may not suffer as rates climb.​

​It is a cardinal rule of finance that with higher potential return comes more potential risk. But how have the ranges of returns of various asset classes actually compared over time? The historical data may surprise investors and justify taking a second look at asset allocation.​

Spooky Curve? Oct 31, 2018

​A topical discussion in many publications may have you “spooked”: the yield curve has been flattening. However, it is important to note that even if the yield curve does invert, equity markets may first deliver a “treat.” ​

​This week marks the 100th edition of Alger On the Money, a program that strives to offer valuable insights and education to our clients. In honor of this milestone, we look back on a century of earnings growth and the stock market returns it has driven.​

​New product adoption is occurring at a much faster rate than ever before because the digital economy creates larger markets that are easier to access. What does this trend mean for the economy and investing? More disruption may be in store.​

​A powerful wave of bond flows has been crashing over equities for years now, but what would happen if the tide changes? If interest rates have already bottomed and bond fund returns remain low, equities could benefit from an ensuing great fund flow rotation.​

As change accelerates and the internet brings people together, the scale at which we communicate and innovate has become much larger and faster, leaving behind a trail of information that is very valuable to many companies.

​While higher valuations for growth stocks relative to the broader market cause some investors anxiety, historical data suggests current valuations may produce solid long-term annualized returns. 

​With a world of information at our fingertips, attention is at a premium. At the same time, digital interfaces, e.g., computers, tablets and smartphones, are cutting out the middleman, allowing brands to communicate directly with consumers in unprecedented ways. The result is increased digital advertising spending.​​

The market backdrop of low interest rates and strong earnings growth may be favorable for equities in 2018 but on November 6 mid-term elections will decide the fate of hundreds of seats in the U.S. Congress. How might the market react?

​In 1993 the Dow Jones Industrial Average was under 4,000; it seems like a different era. But that is how far back we have to go in the evolution of the internet to find a comparable point in the growth of the new asset class, cryptoassets. If that comparison is fair, there may be considerable growth ahead in cryptoassets.​

​This Labor Day workers have good reason to celebrate. For the first time on record, the number of job openings exceeds the number of unemployed. As the labor market tightens, workers should increasingly find themselves in the economic driver’s seat.​

A New Curve? Aug 22, 2018

The yield curve has a strong track record of predicting recessions. Recently the Federal Reserve published a paper that shows a shorter term yield curve is a more accurate forecaster of recessions than the traditional yield curve. However, the short-term yield curve tells a different story.​

​Seven years ago Marc Andreesen wrote that “software is eating the world.” At the time, software investment had already seen considerable gains. Since then, growth in software investment has been so strong that it likely comes as a surprise to anyone who didn’t predict the vast digital revolution taking place. The digital revolution may be in its early innings.​

​Various periods in history have been marked by fears of trade wars.  Indeed, the cover of Time magazine on October 7, 1985 depicts Uncle Sam with arms outstretched as if to stop free trade dead in its tracks, amidst the caption, “Trade Wars.” However, before and since that period, and for much of history, tariffs have declined as the world becomes more interconnected.​​

​The emergence of eSports has some investors excited about the potentially massive market this new form of entertainment may become; eSports may one day even disrupt legacy sports. eSports consists of people watching—and sometimes paying to watch—other people play video games in a competitive environment, with meaningful prize money opportunities for winning championships.​​

India is undergoing a digital revolution that is transforming the 1.3 billion-person country. At the heart of this dynamic change is Aadhaar, a voluntary, unique proof of identity system based upon demographic and biometric information. Available to all residents of India, Aadhaar is the largest biometric-based identification system in the world.

​Emerging technology is taking off at an impressive rate. We don’t mean early stage technology that is being used in developed markets but rather existing technology being adopted in emerging markets. The sector composition of what drives emerging markets is thus changing rapidly, carrying implications for investors.​

Doomed by Debt? Jul 11, 2018

​Many investors are fearful of the amount of debt in the U.S. and the rest of the world. While it is true that debt levels are elevated, debt service, or the share of income used for interest payments and amortizations, is quite low relative to history. The two metrics tell very different stories about the economy.​

​When Americans hit the beach and fire up their grills this July 4th there will be much to celebrate. While the U.S. leads the world in many industries, its strong position in technology may be among the most important factors in its future success.​​​

​Contrary to popular belief, focused portfolios, or those with 50 or fewer securities, have not historically produced more risk than traditional portfolios over 3-, 5-, and 10-year periods according to a recent Greenwich Associates study.1 Additionally, institutional investors believe such portfolios offer greater alpha potential.​​

​Does it seem like technology is moving faster over time? It’s not your imagination; it is. Innovations are being developed more quickly and diffusing through our society more quickly than ever before with dramatic consequences for economic growth and investing.

​Global funding for virtual reality (VR) and augmented reality (AR) firms has nearly tripled to $3.8 billion since 2015. Companies that adopt these technologies can disrupt their industries and potentially create investment opportunities.​

​Why has the current economic expansion lasted so long and when will it end? A big part of the answer is the depth of the recession that preceded it and the rate of the recovery thus far. ​

​The upcoming Memorial Day holiday merits an examination of how defense spending has changed over time and how the government is currently allocating its defense budget.​

​While economic growth appears promising and inflation is accelerating, monetary policy has not yet become restrictive as compared to historical levels. In fact, today the real federal funds rate is roughly 0%, which means the economy may have capacity for further expansion.​

​The performance of actively managed funds relative to passively managed funds has been shown to be cyclical, with recent signs indicating conditions may be ripe for the cycle to favor active managers, creating an environment for active to potentially outperform.​

​Federal government deficits typically occur in weak economic environments, not in periods of strong growth such as we are now enjoying. Deficit spending would boost an economy with high unemployment but its effects on the current economy may accelerate inflation.​

Not So Taxing Apr 25, 2018

​Economic growth can flourish in a free trade environment; however, ongoing international trade issues ​are unlikely to derail the global economic expansion underway. A potential consequence is that some companies may find themselves at an advantage while their competitors face challenges.​

Innovation is not only making an impact on companies but on the environment, including the expected reduction of carbon dioxide. The implications may appeal to investors interested in harnessing the potential benefits of environmentally responsible technology.​

​Infrastructure across the U.S. is failing. Scores of aging highways, bridges, airports, and water systems need repair. A government infrastructure spending package could significantly drive economic activity and revenues for companies that are involved in any future reconstruction.​

​“In the short run, the market is a voting machine but in the long run, it is a weighing machine,” said Benjamin Graham, Warren Buffett’s mentor. Stock prices move on sentiment in the short term but on “weight” or earnings in the long term. The decade-long outperformance of growth vs. value illustrates the “weighing machine” in action.​

​​Anticipation of inflation and increases in the Fed Funds rate by the Federal Reserve have traditionally sent the stock market reeling. History, however, indicates that equities tend to rise alongside the Fed Funds rate.​

Drug Renaissance Mar 21, 2018

​Next-generation sequencing (NGS) allows for analysis of the human genome, the complete set of genetic material within a human. The ways drugs are developed and diseases researched have changed markedly because of NGS. Additionally, tools associated with NGS are redu​cing the costs of disease while improving the accuracy of diagnosis and the efficacy of treatment.​

​Advances in computing power, network speeds and smartphones are driving an explosion in mobile device usage. While mobile is already the dominant vehicle for internet usage in the U.S., mobile is also poised to overtake traditional media (newspaper, television and radio).

​After a multi-decade decline, bond yields appear to be on the rise. Recently, the 10-year Treasury bond yield broke out above its declining trendline, signaling what may be a major reversal in the bond market. This could be the start of what we have called the Great Rotation from fixed income into equities.

​Later this year two major index providers will change their widely used sector and industry classification system. There will be substantial implications, given the trillions of dollars that invest according to this framework, and a potential opportunity for investors.

​For the first time in more than a decade, we expect acceleration in nominal GDP growth to 5%. While the media tends to reference real GDP, nominal GDP reflects the impact of inflation. Corporate revenues are defined in nominal terms and with profit margins running high, revenue growth will be a key driver of future earnings.

​The compensation survey of the National Federation of Independent Business (NFIB) is typically a leading indicator of wage growth. It recently reached a multi-decade high, signaling that a likely increase in wage growth lies ahead. Despite the possibility of higher inflation, this may be good news for the U.S economy because higher wages can lead to increased consumer spending and ultimately drive up revenues for corporate America.

​​After posting strong results last year, emerging markets equities may be poised to rise further in 2018 with the International Monetary Fund forecasting accelerated growth surpassing that of developed markets once again.

​Artificial intelligence (AI) may sound like an adversary in a science fiction novel but in reality it has become an extremely valuable business tool. Companies can now process mammoth amounts of data to discern trends and develop insights that help them make real-time decisions and more accurate forecasts.

​Currently a number of forces are weighing on inflation, allowing the Fed to be patient in its tightening path. Given that every major recession of the past 75 years has followed significant Fed Funds rate tightening or inflation acceleration, or both, we believe a recession is not imminent.

AI’s Ascent Jan 17, 2018

​Artificial intelligence (AI) refers to the ability of computers to execute functions that typically require human intelligence, such as visual perception, speech recognition, decision-making and language translation. As AI capabilities steadily expand, business as we know it is likely to undergo a large transformation at the hands of increased automation and improved forecasting.

​The past three decades have seen unprecedented flows into fixed income funds. Throughout that time, however, U.S. equities have outperformed fixed income regardless of market events. Comparing the last 30 years of equity performance to that of investment grade bonds makes a strong case for the value creation potential of equities.

​Digital businesses exhibit network effects, which refer to the rise in a business’s value with each additional user it acquires. Other examples include the telephone during its early days and currently the internet. Understanding the scale and growth rates that the network effect brings to today’s largest global internet companies is critical when choosing investments in these companies.

​Cloud computing provides people and companies ubiquitous access to shared resources, which has resulted in tremendous economy of scale. This scale creates a virtuous cycle of lower cost and better outcomes that is likely to allow the technology to continue growing rapidly well into the future.

​The Internet of Things (IoT) is happening now. In our lifetime this network of everyday devices and appliances equipped with computer chips and sensors will proliferate. By collecting and transmitting data through the internet, IoT is generating data that is being used to make significant improvements to productivity in industries as diverse as health care and retail.

​The science of cryptography allows parties to securely transmit information or value across insecure channels. The relatively new underlying blockchain technology has given rise to a new asset class, cryptoassets, which is increasingly exchanged in a rapidly growing market with the potential to transform multiple industries.

​As more and more devices are created with internet access and built-in sensors, technology costs are declining and connected device adoption is expected to skyrocket. The likely beneficiaries of the mobile internet revolution are companies that thrive on the utilization of massive amounts of personalized data and those that are poised to harness widespread automation.

​Being the epicenter of venture capital (VC) investment is a factor in why the U.S. is an excellent place to find innovative companies rapidly growing their earnings. Investors looking for companies at the forefront of their industry should consider opportunities in the American market.

​Many people perceive the act of saving as requiring the sacrifice of current pleasures amid the uncertainty of predicting an unknowable future. Fortunately, even a minor adjustment to an existing savings plan combined with smart investing can yield material results.

​China may once have lagged the rest of the world in assuming its slice of the digital economy but it has more than made up for lost time. Its future as a formidable leader of the global internet space has many investors surprised and excited.

​Investors generally expect growth stocks to have higher price-to-earnings (P/E) ratios than value stocks but not everyone is aware of the reasons why. To understand this difference in valuation, consider the variables that drive P/E multiples: growth, profitability, and risk. Given how favorably growth stocks rate across these measures compared to value stocks, their higher P/Es may be warranted.

​Among areas of the economy experiencing intense change, certain industries with high price-to-earnings (P/E) ratios have outperformed, a result of strong innovation and vibrant earnings growth. Rather than focus on P/Es, investors should assess earnings growth potential and the consequences of innovation.

​Innovation is happening at an exponential pace and is changing industries faster than ever before. This has profound implications for where investors are likely to find potential opportunities.

Equally as important as focusing on what to invest in is avoiding market pitfalls. Traditional brick-and-mortar retail, under stress from excess square footage and competitive pressure, is one example.

The multi-trillion dollar retail market is being reshaped by the internet. Sales and traffic at brick-and-mortar stores on Thanksgiving Day and Black Friday this year continued to decline. Meanwhile, internet sales rose in the double digits on both days, surpassing $3 billion for the first time on Black Friday. This tectonic shift is creating investment opportunities.​